Federal Reserve Economic Stimulus Plan Cinches the Noose

The Federal Reserve is now testing a plan to apply negative interest rates to banks counts. Under this plan, banks will charge interest on the money you keep in deposit. As far as the Fed’s concerned, it’s important to get the “consumer” to loosen up in order to get money to move with more velocity through the monetary system. In the Fed’s view, if its first economic stimulus plan fails (as it is already proving to do), it is because the “consumer” didn’t cooperate by taking on the extra debt the Fed tried to feed to consumers. Consumers were fed up with debt and chose to save. So, now the Fed is exploring the idea of punishing the consumer for prudently saving. They hope to wring that hoarded money back into the economy.

Fed officials have made clear that they are a long way away from actually implementing negative interest, even though they are testing the idea. How far off is “a long way.” Well, if we look for an example, Japanese officials made clear that they would never switch to negative interest rates … and then a week later they did it and only told everyone after the decision was made, shocking the world. If you can’t trust your banker, who can you trust?

President Obama has already signed a pact with G-20 nations to give central banks greater power over stock markets. Under this pact, the Fed will pressure investors to buy US bonds at negative interest rates by threatening them with stiffer margin calls on investments if they don’t collateralize the investment with US treasuries. Now that the federal government has lost Russia and China as buyers of US debt, the Fed has become the major buyer of last resort; but it has bought its limit. To entice more buyers into purchasing US treasuries, the federal government would have to pay more interest on its debt; but this new plan will give the government a whip to get investors to actually pay to own US treasuries.

At the same time that the Fed is stress-testing these negative interest ideas on banks, friends of the Fed -- the editorial team at Bloomberg — have written an article urging US politicians to make the US a cashless society. This is another vital link in the plan as it effectively closes the back exit door if you don’t wish to pay interest to a bank on the deposits you keep there.